MCLE Article: On the Receiving End

Inadvertently produced documents create a conflict between lawyers' duties
to their clients and to the courts

By Kurt L. Schmalz

Kurt L. Schmalz, of Lurie, Zepeda, Schmalz & Hogan in Beverly Hills,
practices business litigation with an emphasis on professional liability
cases and legal ethics issues.

By reading this article and answering the accompanying test
questions, you can earn one MCLE legal ethics credit. To apply for
credit, please follow the instructions on the test.

What should a lawyer do when he or she receives,
through the inadvertence of opposing counsel, documents clearly subject
to the attorney-client privilege or attorney work product doctrine? This
question was how the court of appeal framed the issue in State Compensation
Insurance Fund v. WPS, Inc. (commonly referred to as the State Fund case).1
The issue, like so many others facing the appellate courts, is easier
to state than it is to resolve. Indeed, it has perplexed courts and ethics
experts for a long time.

Now, this troublesome issue involving the inadvertent production of
documents is before the California Supreme Court in Rico v. Mitsubishi
Motors Corporation, which could be one of the court's most important legal
ethics decisions in recent years. In Rico, the supreme court will review
the decision by the Fourth District Court of Appeal to affirm the trial
court's order disqualifying an attorney who was the recipient of a privileged
document through the inadvertence of opposing counsel.2

For more than 20 years, California courts have vacillated between two
opposing positions. Initially, courts found that an attorney receiving
inadvertently produced documents had no duty to return the documents or
to refrain from looking at them--and may even use the documents to benefit
his or her client in the case. Later courts have held that an attorney
must immediately return the inadvertently produced documents to opposing
counsel, looking at the documents only to the extent necessary to determine
their privileged nature.

One of the early seminal decisions on this issue is Aerojet-General
Corporation v. Transport Indemnity Insurance.3 In Aerojet, the court of
appeal reversed a sanctions order against the recipient attorney, noting
that: "Once he had acquired the information in a manner that was not due
to his own fault or wrongdoing, he cannot purge it from his mind. Indeed,
his professional obligation demands that he utilize his knowledge about
the case on his client's behalf."4 The Aerojet court found it significant
that the attorney receiving the purportedly privileged information did
not violate any statutes, judicial decisions, rules of court, or rules
of professional conduct in using the information he received to his client's
advantage. In fact, the court noted that the attorney's primary duty was
"to protect the interests of his own clients."5

The Aerojet decision, however, was not the final word on the inadvertent
production issue. As discovery in complex litigation became more wide-ranging
and voluminous, and the routine use of facsimile transmission made document
production instantaneous, the problem of inadvertently produced privileged
documents became even more prevalent and difficult. In 1992, the American
Bar Association's Standing Committee on Ethics and Professional Responsibility
issued Formal Opinion 92-368, which addressed the inadvertent disclosure
of confidential material.6 The committee stated in its opinion that a
lawyer who mistakenly receives privileged or confidential documents from
opposing counsel should refrain from examining the documents, immediately
notify opposing counsel who sent the documents, and return the documents
if opposing counsel requests their return.7 The ABA opinion represented
a departure from the standard rule enunciated in Aerojet, which seemed
to place a greater emphasis on the lawyer's duty to zealously represent
the interests of the client than on the lawyer's duty of fair play as
an "officer of the court." For this reason, ABA Formal Opinion 92-368
was not well received.8

Bowing to criticism, the ABA modified its position two years later in
Formal Opinion 94-382, which created a course of action for a lawyer who,
as a result of opposing counsel's mistake, receives privileged or confidential
material. In this circumstance, the lawyer 1) may review the materials
only to the extent necessary to determine whether they are privileged
and how appropriately to proceed, 2) should promptly notify opposing counsel
that he or she has the materials, and 3) should follow the instruction
of opposing counsel about the documents or refrain from using the materials
until the court rules on how the materials should be handled.9 Even though
the ABA Model Rules of Professional Conduct and ABA Formal Opinions are
not controlling in California, California courts tend to give them substantial
weight and deference--especially when the California Rules of Professional
Conduct and the State Bar Act do not address the issue and the rule does
not conflict with California public policy.10

State Fund and the ABA Opinions

In 1999, the Second District Court of Appeal in State Fund11 moved California
away from the Aerojet decision and closer to the ABA standard. Although
it did not disapprove Aerojet, the court in State Fund limited Aerojet
to its facts and adopted a rule for California that was nearly identical
to ABA Formal Opinions 92-368 and 94-382. In State Fund, the appellate
court reversed a sanctions order against an attorney who received--through
the mistake of opposing counsel--privileged documents, which the attorney
used against his opponent and even gave to another attorney litigating
claims against the State Compensation Insurance Fund. After the receiving
attorney refused opposing counsel's request to return the documents, the
trial court found the attorney's conduct to be unethical and in bad faith
and imposed monetary sanctions on the attorney and his client.12

In reversing the sanctions order, the State Fund court noted that the
receiving attorney had not violated any California decision, statute,
or rule of professional conduct. The court found that the attorney did
not comply with ABA Formal Opinion 92-368 but emphasized that California
did not follow the ABA rules. Nonetheless, the court used ABA Formal Opinion
92-368 as a guide in formulating a rule for California attorneys to follow.13
The court ruled that a lawyer who receives clearly privileged documents
from an adversary should: 1) stop reading the documents as soon as the
privileged nature of the documents become apparent, 2) immediately notify
opposing counsel that the lawyer has the documents, and 3) resolve any
disputes about the handling of the documents with opposing counsel or
refrain from using the documents until the court determines their disposition.14

The court in State Fund devised this rule after balancing the competing
duties that lawyers owe to their clients and to "the administration of
justice."15 Placing great weight on the "sanctity of the attorney-client
privilege," the court made a pronouncement: "We believe a client should
not enter the attorney-client relationship fearful that an inadvertent
error by its counsel could result in a waiver of privileged information
or the retention of the privileged information by an adversary who might
abuse and disseminate the information with impunity."16

Notwithstanding the rule in State Fund, which places clear obligations
on the lawyer receiving privileged documents, the court offered some consolation
to the receiving attorney in its opinion. In reversing the sanctions order,
the court held that "whenever a lawyer seeks to hold another lawyer accountable
for misuse of inadvertently received confidential materials, the burden
must rest on the complaining lawyer to persuasively demonstrate inadvertence."
The court commented further that an attorney should not be subject to
disqualification simply because he or she has been exposed to the confidential
information of an adversary. Nevertheless, even though the court referred
to disqualification as a "draconian" remedy, the court made it clear that
in an appropriate case--presumably when the recipient attorney fails to
follow the court's newly articulated rule--disqualification might be warranted.17

The Rico Challenge

The State Fund court's discussion of disqualification of the receiving
attorney as a possible sanction seems to have set the stage for the court
of appeal's decision in Rico. The Rico court moved the rule on the receiving
lawyer's ethical duty 180 degrees from the rule established in 1993 by
Aerojet and well beyond the middle ground staked out by the court in State
Fund.

Rico arose when counsel for a plaintiff in an SUV rollover case obtained
a written summary of a conference between the defense attorney and defense
experts about certain strengths and weaknesses in their case.18 The plaintiff's
attorney testified that he got the summary when a court reporter mistakenly
delivered the document to him at a deposition. Defense counsel claimed
that the plaintiff's attorney took the document from his files while defense
counsel was out of the room. Despite the apparent conflict in the evidence,
the trial court determined that the document had been inadvertently produced
to plaintiff's counsel.19 The production of the defense memorandum came
to light when plaintiff's counsel used the document at a subsequent deposition
in the case. Defense counsel learned of the document's use and demanded
its prompt return.

After plaintiff's counsel refused to return the document, defense counsel
immediately filed a motion to disqualify the plaintiff's attorney and
the plaintiff's experts, who had also reviewed a copy of the document.
Following a lengthy hearing, the trial court found that the defense memorandum
was subject to the attorney-client privilege and work product doctrine
and that plaintiff's counsel violated his ethical duty by failing to notify
opposing counsel that he had the document and was using it. The court,
relying on the State Fund decision, granted the motion and disqualified
the plaintiff's attorney and experts because the attorney's review and
use of the privileged document caused "unmitigatable prejudice" to the
defense. The Fourth District Court of Appeal affirmed the disqualification
order,20 and the California Supreme Court granted review on June 9, 2004.
At press time, oral argument in the case had not yet been scheduled.

The appellate court in Rico found that the rule for attorney conduct
enunciated in State Fund provided the decisional basis that was lacking
when the Aerojet case was decided. Even though the State Fund court considered
disqualification of the receiving attorney a draconian remedy, the court
in Rico had no difficulty in affirming the disqualification order. Both
the trial and appellate courts in Rico were highly critical of the receiving
attorney because he "studied the document carefully, made his own notes
on it, discussed the meaning of the notes with the experts and based his
litigation strategy and expert witness cross-examination upon the information
contained in the document."21 The appellate court acknowledged that the
receiving attorney relied on the Aerojet case but still found his conduct
to be unethical because he failed to make any "further inquiry into his
ethical responsibilities," and "made full use of the privileged document"
in violation of the ethical standards in State Fund.22

Hopefully, in deciding Rico, the state supreme court will resolve the
uneasy tension between the Aerojet and State Fund decisions and give California
attorneys a clear ethical standard to follow when they receive privileged
documents through the mistake of opposing counsel. The situation in states
that follow the ABA Model Rules is even more confusing. Last year, as
Rico came under review by California's highest court, the ABA reversed
itself and withdrew Formal Opinion 92-368--the opinion that strongly influenced
the State Fund decision.23 On October 1, 2005, the ABA's ethics committee
adopted Formal Opinion 05-437, which states:

A lawyer who receives a document from opposing parties or their lawyers
and knows or reasonably should know that the document was inadvertently
sent should promptly notify the sender in order for the sender to take
protective measures. To the extent that Formal Opinion 92-368 opined
otherwise, it is hereby withdrawn.

Under ABA Model Rule 4.4(b), "A lawyer who receives a document relating
to the representation of the lawyer's client and knows or reasonably should
know that the document was inadvertently sent shall promptly notify the
sender." The commentary to the rule confirms that the receiving lawyer's
only duty is to promptly notify the sender so that the sender can take
appropriate action. However, the commentary states, "Whether the lawyer
is required to take additional steps, such as returning the original document,
is a matter of law beyond the scope of these Rules, as is the question
of whether the privileged status of a document has been waived."24 The
ABA standard is further clouded because even though ABA Formal Opinion
92-368 was withdrawn, ABA Formal Opinion 94-382--which addresses a lawyer's
duty when the lawyer inadvertently receives "privileged or confidential
materials" of an adverse party--apparently is still viable.

Thus, it is unclear whether the lawyer's duty is simply to notify opposing
counsel of the receipt of the materials or if the more extensive duty
outlined in ABA Formal Opinion 94-382 controls. Nonetheless, ABA Model
Rule 4.4 and its commentary would most likely control in the jurisdictions
that follow the ABA standards. The attorney's only duty under the rule
is to disclose the receipt of the documents to the opposing counsel. However,
an argument could be made that the more rigorous standard in Formal Opinion
94-382 applies when the inadvertently produced documents are clearly privileged
or confidential. Rule 4.4 does not expressly address the inadvertent production
of privileged documents.

The Privilege Issue

With these sometimes conflicting developments, the California attorney
who has the fortune (or misfortune) to receive, through the mistake of
opposing counsel, possibly privileged or confidential documents that opposing
counsel did not want the attorney to see, faces some significant dilemmas.
Certainly, the rule in State Fund is still good law in California, although
its basis has been undermined by the ABA's withdrawal of ABA Formal Opinion
92-368 and the California Supreme Court's impending review of Rico. However,
the efficacy of an ethical rule should be measured in its clarity and
consistent application. At this point, at least until Rico is decided,
California's standard--as well as the national standard--regarding what
a receiving attorney should do with inadvertently produced documents is
neither clear nor consistent.

The most problematic portion of the rule outlined in State Fund, and
expanded in the Rico court of appeal decision, is the determination of
whether the inadvertently produced document is actually privileged.25
The difficulty begins with discerning when the receiving attorney's duty
to contact opposing counsel about a mistakenly produced document arises.
In State Fund, the inadvertently produced documents were clearly stamped
with the heading "Attorney-Client Communication/Attorney Work Product"
and the word "Confidential" on the first page of each form.26 Thus, on
their face, the documents put receiving counsel on notice that the opposing
party believed the documents to be privileged and/or confidential. However,
the documents inadvertently produced in Aerojet and Rico were not labeled
"Confidential" or "Privileged," or any similar markings.27 In each of
those cases, the appellate court offered an in-depth analysis of whether
and to what extent the mistakenly produced documents were privileged at
all.

In Aerojet, the court concluded that the document itself may have been
confidential or even privileged, but the underlying information in the
document (the identity of potential witnesses) was not privileged. This
conclusion that the mistakenly produced information was not privileged
was used by the State Fund court to distinguish Aerojet and limit the
case to its facts. But how can the receiving attorney make the kind of
analysis necessary to determine the privileged nature of a document if
extensive review and analysis of the document is considered improper?
There was no way the receiving attorney could have properly determined
whether the document was privileged or not without reading and thoroughly
analyzing it.

In Rico, the privilege issue was even more complicated. The trial court
based its ruling on its assumption that any reasonable attorney would
have known that the defense memorandum was subject to the attorney-client
privilege and the work product doctrine. However, the appellate court
found that the trial court was only half right. After extensive analysis,
briefing, and oral argument by counsel, the trial court ruled that the
memorandum was subject to the attorney-client privilege.28 This was an
error, according to the appellate court. Nonetheless, the appellate court
found that the memorandum was still protected because it consisted of
attorney work product, even though the document had been prepared by a
paralegal, apparently at a lawyer's request.

The appellate court reached this conclusion after an extensive analysis
of the document and how it was prepared. According to the court, if the
memorandum had been a transcription of a discussion between defense counsel
and defense experts, it would not have been subject to absolute work product
protection.29 However, the trial court found that the document included
the thoughts and impressions of the defense attorney--and was therefore
entitled to absolute attorney work product protection.

If a proper determination of the privileged nature of a document requires
the extensive analysis of a trial court and an appellate court--after
full briefing and oral argument of counsel--then it is difficult to fault
an attorney for "meticulously examining" and analyzing a document that
the attorney inadvertently received.30 Indeed, as the court observed 23
years ago in Aerojet, an attorney has an ethical duty not only to examine
and analyze the adversary's document but to use the evidence to further
the interests of the attorney's client.31

Of course, an ethical dilemma arises when the inadvertently produced
document clearly appears to be privileged, such as when the document is
so labeled or when the document appears on the producing party's privilege
log. Even then, the receiving attorney should not be faulted for reviewing
and analyzing the document before contacting opposing counsel. Upon thorough
review, the document may not be legitimately privileged or counsel may
reasonably believe that any privilege has been waived. Moreover, given
the high volume of documents produced in many cases and tight trial deadlines,
the receiving lawyer may not appreciate the importance or privileged nature
of the document until later in the case during trial preparation or expert
discovery. In a close case, it would not be unreasonable for the receiving
attorney to err on the side of protecting his or her client's interests
in using the documents rather than to help opposing counsel clean up an
embarrassing mistake.32

And what if a clearly privileged document mistakenly produced to opposing
counsel revealed that the producing party had destroyed key discoverable
documents, was hiding witnesses, or was encouraging them to lie under
oath? Indeed, in Rico, the court of appeal rejected the plaintiff's argument
that the use of the inadvertently produced defense memorandum was justified
because it revealed that the defense experts were lying about the technical
evidence in the case. The court found that:

Once the unintended reader ascertains that the writing contains an
attorney's impressions, conclusions, opinions, legal research or theories,
the reading stops and the contents of the document for all practical
purposes are off limits....Unlike with the attorney-client privilege,
there is no crime-fraud exception to the attorney work product rule.
The absolute attorney work product privilege is just that, absolute.33

If the Rico court's analysis survives supreme court review, then the
smoking gun document that a litigator receives and reads may become a
ticking time bomb that could result in the attorney facing disqualification,
monetary sanctions, and public reproval from the courts for being "unethical."

Perhaps the courts have put an unreasonable, and ultimately unworkable,
burden on attorneys who receive, through no misconduct of their own, privileged
documents from the opposing side. The courts can, without imposing severe
punishments on the receiving attorney, preserve the integrity of the judicial
process and sanctity of the attorney-client privilege and other privileges
and protections by excluding from evidence on dispositive motions or at
trial inadvertently produced privileged materials and any other evidence
derived directly from those materials.34 While the receiving attorney
may have obtained some actual or perceived advantage over his or her opponent
as a result of receiving an inadvertently produced document, this advantage
is minimal if the attorney is unable to use the document or privileged
information at trial.35 Moreover, the courts should not be in the business
of compelling attorneys to clean up their opposing counsel's mistakes.
A lawyer should adhere to a duty of fair play as an officer of the court.
However, the courts should be careful not to advance amorphous interpretations
of fair play at the expense of the lawyer's fundamental duty to zealously
represent his or her client.

In this time when ethical rules are not entirely clear and thus appear
to be more like a moving target than they should be, California attorneys
are well advised to protect themselves and their clients by promptly disclosing
to opposing counsel in writing that they have received documents that
may have been inadvertently produced. Thereafter, the burden should be
on the producing attorney to put the issue before the court and demonstrate
that: 1) the documents were given to opposing counsel through mistake,
inadvertence, or neglect, 2) the documents are truly privileged, and 3)
the privilege has not been waived.

The disclosure by the receiving attorney should be a safe harbor to
defeat any subsequent motions by opposing counsel to disqualify the receiving
attorney or experts or for monetary and other sanctions directed at the
receiving attorney or his or her client. If appropriate, the court, after
the disclosure, can exclude the privileged document from evidence and
make any other in limine orders to protect the sanctity of privileged
communications and the administration of justice.

Endnotes

1 State Comp. Ins. Fund v. WPS, Inc. (State Fund), 70 Cal. App. 4th 644, 651 (1999).
2 Rico v. Mitsubishi Motors Corp., 116 Cal. App. 4th 51, 10 Cal. Rptr. 3d 601 (2004), Cal. Sup. Ct. Case No. S123808 (rev. granted June 9, 2004). The supreme court's grant of review in Rico had the effect of depublishing the court of appeal decision so that it is no longer citable authority on this issue.
3 Aerojet-General Corp. v. Transport Indem. Ins. Co., 18 Cal. App. 4th 996, 1005 (1993).
4 Id. at 1005-06.
5 Id. at 1005.
6 See The "OOPS" Factor, ABA J., Feb. 2006, at 26.
7 ABA's Standing Committee on Ethics & Professional Responsibility, ABA Formal Op. No. 92-368.
8 ABA J., supra note 6.
9 ABA's Standing Committee on Ethics & Professional Responsibility ABA Formal Op. No. 94-382.
10 State Comp. Ins. Fund v. WPS, Inc. (State Fund), 70 Cal. App. 4th 644, 656 (1999) ("[T]he ABA Model Rules of Professional Conduct may be considered as a collateral source, particularly in areas where there is no direct authority in California and there is no conflict with the public policy of California." (emphasis in original)).
11 Id. at 644.
12 Id. at 651.
13 Id. at 655-56. Interestingly, the court did not appear to consider ABA Formal Opinion 94-382, which modified Formal Opinion 92-368. However, the rule developed by the court in State Fund is very similar to ABA Formal Opinion 94-382.
14 State Fund, 70 Cal. App. 4th at 656-57.
15 Id. at 657.
16 Id.
17 Id.
18 Rico v. Mitsubishi Motors Corp., 116 Cal. App. 4th 51, 10 Cal. Rptr. 3d 601, 603-04 (2004), Cal. Sup. Ct. Case No. S123808 (rev. granted June 9, 2004).
19 Id., 10 Cal. Rptr. 3d at 604. If the trial court had found that the receiving attorney had pilfered the document from opposing counsel, then the attorney would have been clearly guilty of misconduct and deserving of severe sanctions.
20 Id. at 616-17.
21 Id. at 613-14.
22 Id. at 614-15.
23 ABA J., supra note 6.
24 ABA Model Rules of Prof'l Conduct R. 4.4 cmt.
25 Even more perplexing is how to treat inadvertently produced documents that are "confidential" but not privileged. Most businesses consider their internal documents produced in discovery to be confidential. It seems unworkable for an attorney's obligation to be triggered every time he or she receives inadvertently produced confidential documents—especially when the documents (or information contained within them) are not privileged. Aerojet-General Corp. v. Transport Indem. Ins. Co., 18 Cal. App. 4th 996, 1005 (1993).
26 State Comp. Ins. Fund v. WPS, Inc. (State Fund), 70 Cal. App. 4th 644, 648 (1999).
27 Aerojet, 18 Cal. App. 4th at 1003; Rico, 10 Cal. Rptr. 3d at 614.
28 Rico, 10 Cal. Rptr. 3d at 606.
29 Id. at 609.
30 Id. at 614-15.
31 Aerojet, 18 Cal. App. 4th at 1005.
32 See Mansell v. Otto, 108 Cal. App. 4th 265 (2003). The Mansell court declined to apply the rule in State Fund to a case in which a crime victim was suing a criminal defense attorney for reviewing her mental health records. The court found that defense counsel received the privileged medical records inadvertently from the prosecution. However, since the documents were produced pursuant to subpoena and defense counsel's discovery requests, the court found that defense counsel could not reasonably have known that production of the records was "inadvertent." Id. at 286.
33 Rico, 10 Cal. Rptr. at 616.
34 Courts for decades have used exclusionary rules of evidence in criminal cases to protect defendants from evidence obtained by the government through unlawful searches and seizures. In these cases—in which there is arguably more at stake than in most civil litigation—the exclusion of improperly obtained evidence is sufficient to protect the defendant's interests and the administration of justice. Rarely are prosecutors or government officials punished for obtaining or trying to use evidence obtained from an unlawful search. With inadvertently produced documents in civil litigation, the receiving lawyer has not broken any laws or taken any intentional acts to violate the legal rights of the opposing party.
35 In Aerojet and State Fund, the parties that inadvertently produced the documents ultimately won their respective cases. Aerojet-General, 18 Cal. App. 4th at 1003-04; State Comp. Ins. Fund v. WPS, Inc. (State Fund), 70 Cal. App. 4th 644, 648 (1999).

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